In order to save enough money for retirement, you want to make sure you put away as much of your income as possible in a 401K plan offered by your employer. The way you invest that money is just as important as the amount you save. You want to make sure you get a good return on your investment, and that your money will be safe during uncertain rises and falls in the market. Allocate your 401K investments by investing in a combination of stocks, bonds and other assets.

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Steps

1

Get all of the information you can from your plan administrator. The person at your company responsible for administering your 401K plan should have prospectus information on all the possible investment options.

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2

Use a target-date retirement fund. Instead of choosing separate stocks and bonds to invest in, put your 401K funds into a managed portfolio based on the year you plan to retire.

Pick the fund with the year that is closest to your expected retirement date. The portfolio will include stocks, bonds and other assets with a level of risk that is appropriate to the number of years you have until retirement.

Avoid investing in other funds. If you choose a target date retirement fund, all of your 401K money should go into it. Since the target date fund disperses your investment among different stocks and bonds, there is no need to over-diversify your money.

3

Invest in funds that have performed consistently in the past. Look for steady returns without high peaks and dramatic lows from year to year.

Consider high performing funds carefully. Most funds that over perform for a period of time begin under-performing for a while after their best years are over.

Avoid the funds that always perform poorly.

4

Consider costs. Investing in funds that cost less will allow you to keep more of the return in your portfolio.

5

Choose stocks with low cost index funds. Look for the word "index" in the name of the fund to identify those.

Look for stock funds that charge 1 percent or less to invest.

Look for bonds that charge 0.5 percent or less.

6

Consider your tolerance for risk when allocating your 401K funds. Traditionally, people with less time until retirement have a lower risk threshold while those with more time can take a bit more risk.

Choose riskier investments, such as high yield bonds or high tech equities if you can handle a lot of risk. They will often give you a larger return when they are successful.

7

Diversify your 401K portfolio. If you choose not to use a target retirement date fund and instead put together your own portfolio, make sure there is a mix of stocks, bonds and other assets such as mutual fund cash.

8

Invest in company stock, but do not put all of your money there. Many people like to invest in their own companies. Putting all of your retirement in one stock is never a good idea.

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Tips

Consider working with a financial planner or investment counselor. A professional can advise you which 401K funds are your best options. You will probably be charged a fee, but it usually comes right out of your investment account.

Roll your 401K over into a new fund when you switch jobs. Cashing out of your investments will cost you money in taxes and fees.

Warnings

Do not make a lot of frequent changes to your 401K allocations. Most funds charge you when you make changes, and you want to give your investments a little time to grow before you move them around. Set them and then check in on their performance 1 time every year.

Remember that there is never a guarantee that you will make money in your 401K. While most experts agree that saving for retirement early will give you a good amount of savings after 20 or 30 years, the market is volatile and there are no guarantees of return.